By the end of this year, figure that about 20 percent of the U.S.’s
1,400-plus dailies will be charging for digital access. Gannett’s February announcement
that it’s going paywall at all its 80 newspapers galvanized attention; when the
third largest U.S. newspaper site, the Los Angeles Times, went paid this week,
more nodding was seen in publishers’ suites.

More than a dozen dailies in Europe are charging, led by Finland’s Sanoma
(see “Sanoma’s
Big Bundled Success”), Axel Springer, and News Corp.’s Times of London. It
looks like more than a dozen in Germany alone may be charging by year’s end. In
Asia, the powerful Singapore Press Holdings is first out of the gate, with other
dailies there planning to follow.

Suddenly it’s paywalls all around the world. We’ve moved — in a couple of
years — from the question of whether to when. The big question
that should be asked now: How?

Charging for digital access is a nuanced question. For smart publishers, it’s
part of a much larger strategic shift, touching every part of their operations:
circulation, content, and advertising.

Let’s look at the newsonomics of an increasing paywalled world. The
well-publicized New York Times digital scheme has gotten most of the attention,
but it’s a global news source — more akin to The Wall Street Journal, the BBC,
The Guardian, and CNN than to regional and local dailies.

While the Times is a fledgling pay model success, we can’t say, broadly, that
paywall models are widely successful. Most aren’t failures, but few can point to
the significant revenue difference that The New York Times, WSJ, or Financial
Times plans have made to their transitioning businesses. Why? And what are the
emerging successful formulas?

First, it should be said that the sky has neither opened up into a dazzling
blue future nor fallen. A couple of years ago, predictions about the impact
of paywalls mostly fell on the doomsday side of the equation. About the same
time that going pay was proclaimed as another sign of the imminent death of Old
Media, some were poking fun at the new iPad as a big smartphone that no one
would want to hold up to her ear. Time to chill on the whole doomsday
storytelling — we’re all in for lots more twists and turns.

So if charging for digital access — a too long phrase, but one
that’s most accurate than paywall — is neither a panacea nor a tombstone on the
way to the inevitable, what is it? It’s a building block, and it’s a way to
re-envision the business.

It’s about a major shift in strategy, says Star Tribune publisher Mike
Klingensmith, whose paper went
pay on Nov. 1.

“We’re changing the nature of the customer relationship,” he told me.
“Instead of the website undermining pricing of your content, it supports the
pricing of your content” — seizing on the profound difference the all-access
revolution is beginning to make. Relationships don’t change overnight, and
that’s one important lesson to draw here: If newspaper companies can do more
than offer lip service about relationship and “membership,” they have the
ability to recreate an updated version of the trusted, community-oriented
relationship that the better dailies long held. If they can reinvent the
relationship, they have a shot at transforming themselves (“The
newsonomics of crossover”) as they move into the mostly digital era.

Let’s look at some of the metrics learned from the early pay period, in
talking with a number of the business executives who have been at the forefront
of this grand experiment.

The big bogeyman of digital ad loss

The first big question that’s been laid to rest is the journalistic corollary
of the Hippocratic Oath: Do no (advertising) harm. Remember the big fear about
“going pay”: Would a paywall decrease digital visitors so much as to harm the
only part of newspaper publishers’ businesses that’s growing, digital
advertising? Metered models, like The New York Times’ (“At
Almost 400,000 Digital Subscribers, Inside the New York Times Pay Strategy, Year
2″) and the Los Angeles Times’, are now the trade’s standard, having been
advocated strongly by Press+ when it got rolling in 2009. Allowing 10-20 free
articles a month has meant that traffic loss has been minimal; given the
near-infinite amount of digital ad inventory, such traffic loss has had
practically no effect on digital ad sales.

“All of the almost 300 publishers now using Press+ have kept their online ad
revenues because we use data to make sure there is plenty of ad inventory to
meet advertiser demand,” says co-founder Gordon Crovitz of Press+, which was acquired
by RR Donnelley last year.

Even if some papers experience a small negative impact, new digital revenue
quickly outpaces it. “In our first month of paid service, online subscription
revenue was 3x the network advertising we lost because of the drop in pageviews,
and our online subscription revenue has grown every month since,” says Andy
Waters, general manager of the Columbia Daily Tribune in Missouri, which went
pay on Dec. 1, 2010.

Pageview loss has ranged as high as 40 percent (at the Columbia Daily
Tribune) and has typically run about 10-15 percent. Interestingly, from
Minneapolis to Columbia to Hamburg, traffic often begins to grow markedly after
the initial shock of a paywall. It may take months or a couple of years, but
traffic is essentially reset and can then be rebuilt. Clearly, the most
important readers — core readers who really use the news product through the
week — have stayed the course.

The flipside of a tougher paywall is a higher signup rate, and more revenue,
from those valuing the content.

Remove one major fear.

Selling more papers

One reason some papers went pay: Try to reduce the number of subscribers
fleeing print. So far, there’s been a minimal impact on retaining subscribers,
or “reducing churn,” as it is called in the business. The Memphis Commercial
Appeal’s publisher Joe Pepe points to a 1 percent increase in Sunday home
delivery, similar to what The New York Times has found. In Minneapolis, the Star
Tribune has gotten 20 percent of its 15,000 “digital-only” subscribers to pony
up an additional 29 cents (!) a week to get the Sunday Strib.

The Sunday sale is a major part of the how we see rolling out. At the Strib,
it’s an inside-out, outside-in offer. If you only take the Sunday paper
(subscribers who get two or more days of the paper delivered get free
digital access), you’ll get a low, introductory rate to add digital access; if
you’re a digital signup, you’ll be pitched on the 29-cent deal.

The L.A. Times is putting its own spin on the Sunday deal: pay
99 cents a week for the first four weeks (and $1.99 thereafter) to get free
digital access and the Sunday paper. Want just free digital access only
— that’ll cost $3.99 a week. You don’t have to be a coupon professional to
figure out the better deal. The LAT approach mimics the NYT approach, which
charges readers about $60 a year more if they refuse to take the Sunday paper.
Maybe we should call it the Godfather offer.

How much will Sunday (“The
newsonomics of Sunday paper/tablet subscriptions”) grow, given such pricing
— which I expect more metros will adopt, given that they still have relatively
weighty, ad-revenue-rich Sunday papers? The first job is to stop the Sunday
bleeding, and if combined digital/Sunday products do it, consider it a
tourniquet that publishers hope to get a couple of years out of, even as daily
print circulation continues to decline. The Sunday angle — the Sunday
paper angle — is a big one.

New money

While The New York Times is on a double-digit circulation (print + digital)
revenue trajectory, other papers are having a hard time reaching that number.
Columbia points to a 5-6 percent lift, enough to cover several newsroom
positions for the small daily. Minneapolis points to a 3.75 percent lift, based
on its new $1.5 million revenue stream, earned at $100 a year (or $2/week) from
15,000 digital subscribers. Others say the circulation revenue is flat to a
little up.

One little secret of the trade: the opt-out. Build in higher pricing for
combined print and digital access, and allow readers to take print only — if
they affirmatively opt out. Eighty percent or so won’t opt out, and so we’ve
seen high retention rates among newer subscribers.

The wild card here is how much the all-access offer — part of the changing
customer relationship the Star Tribune’s Mike Klingensmith suggests — allows
papers to price up their overall print/all-access subscriptions. He says the
paper priced up its overall subscriptions 9 percent last spring, with little
negative impact, the first time it had priced up in recent memory. Another
increase is in order for this fall.

That’s the big key here, I think: If you tell customers “we’ll get you our
content however, wherever you want it” — and deliver on that proposition with
products that match the tablet and smartphone age — the creation of
added value makes sense to readers. So it’s important to look beyond
digital-only revenue itself, and look at the total reader-revenue-producing
potential of smart pay plans.

As Gannett points to a goal of adding $100 million in new revenue, which
would be a 10 percent circulation rev boost overall, look for as much of that to
come from upward pricing in general as new digital-only subs themselves.

That said, it’s useful to pay attention to a new emerging metric: what
percentage of a newspaper’s site unique visitors are signing up for digital
access-only subs. The New York Times broke the 1 percent barrier last year,
390,000 subs compared to 33 million U.S. unique visitors. The Commercial Appeal
is at .8 percent; The Star Tribune is at .25 percent with its four-month
initiative. The Columbia Tribune is at .2 percent. It’s just one metric, but one
that tells us about comparative traction. Though, it seems like a tiny number,
it’s not. Fly-by traffic, supplied by Google and now Facebook, supplies so much
traffic that about 3 percent of most newspaper sites’ unique visitors equal
their paid print circulations. The digital-only conversion metric provides an
apples-to-apples comparison, even as overall print/digital circulation impact
remains key — and is measured in that old standby, dollars, euros, and
pounds.

The goal here: Head to 50 percent of overall revenues being paid by
readers.

These numbers are only a snapshot and come from some of the better
practitioners of the digital pay craft. Many more are underachieving. The point
is that there is an emerging playbook of how to get pay working right.

For now, let’s boil it down the how to 5 P’s:

People: As in customers. Few newspapers — probably a
dozen or fewer in the U.S. — know their combined print and digital
audiences as a single audience. It takes a lot of technology moving to get a
single, whole view of a customer, matching the subscriber database with the
digital registration database to get a holistic view. Without that view, it’s
tough to operate a modern, somewhat digital/somewhat print business — and
maximize the value of new pay propositions. The New York Times, the Star
Tribune, and the Commercial Appeal are among those who do, and papers as small
as The
Day are getting there.

Product: This is a simple question of content. How much
strong local coverage are readers missing after a half decade of staff cuts? The
better a news organization covers its community, the more it can dare to charge
and still get customer traction. Some papers may simply have already cut too
much.

Presentation: Consumers — us — understand the all-access
pitch. News (and magazine) publishers have to make it real. That means real
ready-for-the-tablet (and smartphone) products, app-based and HTML5.
Replica-plus products will satisfy paying readers less and less over time — and
won’t compete with Flipboard-esque experiences.

Pricing: Enough said. Newspaper (and magazine) pricing has
been fairly dumb over the years, a follow-the-leader, seat-of-the-pants
exercise. Playing with the value equation, print and digital, requires
both testing and matching of new value to new price.

Promotion: More than just marketing, the new promotion
makes better psychological sense of the all-access proposition to older and
newer (and younger) customers.

So 5 P’s — or maybe more.

“You have to do eight things right,” says Gregor Waller, a former exec at
Axel Springer and now CEO of Digital Age Consulting, who is in the midst of
advising a number of major media globally on pay models. “It’s like a golf
swing. If you miss out on one, you can’t hit the ball correctly.”

.

iPad 3
launches: What does it mean for news publishers?

Today Apple unveiled the new iPad 3—notable mainly for improved graphics
capabilities, a better camera, and 4G wireless network access. Thus it probably
earns Apple’s marketing buzzword “resolutionary,” since it’s by no means
revolutionary. Still, this tablet is expected to sell well in coming months.

In the run-up to today’s product launch, many news
publishers have updated their iPad apps. Over the last two weeks, such updates
include the iPad apps for the New York Times, Associated Press, New York Daily
News, Pulse News, Flipboard, NBC Nightly News, the Guardian (Eyewitness app),
the Star Tribune and more.

Now that the specs and capabilities of the iPad3
have been confirmed, it’s likely that even more news organizations will be
revamping both their apps and the kind of content delivered through
them—especially the resolution of photos, video, and graphics.

Video—including live streaming—might be an
especially good bet for iPad app content, since the iPad3 runs on faster 4G wireless
networks from Verizon or AT&T. Also, since the tiered iPad3
data plans do not require a contract and can be changed or canceled at any
time, it’s likely that many iPad3 users will sign up for 4G service at least
initially just to try it out.

This means that demand for mobile video will
likely spike via both iPad apps and the mobile web after the iPad3 hits stores
March 16. This might be a good time to review your capabilities for video
delivery, especially during sudden spikes driven by breaking news. Can your
servers handle this kind of mobile traffic? And how prepared are the carriers to
deal with such spikes?

According to a recent
report from comScore, Apple’s iOS mobile operating system currently accounts
for 60% of all U.S. mobile traffic, and the vast majority (90%) of all tablet
traffic in the U.S.

The improved camera and built-in photo, video, and
audio editing and management capabilities of the iPad 3 might also make this
market segment a good target for multimedia contests, or collaborative projects
such as crowdsourcing.

Of course, if your news or info venue serves rural
communities or other places lagging in 4G deployment, the iPad 3 will have
relatively little impact at this time.

The iPad 3 is still rather pricey: the lowest-end
wifi-only model costs $499, and if you want to add 4G capability that costs $130
more up front. Plus there’s the cost for the data plans, which range from
$15/month (for a paltry 250 MB, from AT&T) to $80/month (for 10 GB,
Verizon).

What will be more interesting will be to see if
later this year Apple finally launches a smaller, cheaper iPad mini. This long-rumored
unicorn so far has failed to materialize—but if the Kindle Fire and other
smaller Android tablets keep gaining ground fast, Apple might be tempted to
compete with this large consumer market segment. It’s still a rough economy out
there—and the lesson of how Android quickly came to dominate the U.S. smartphone
market is probably not lost on Apple. An iPad mini would have very different
device and app support capabilities, which would require more significant
adaptation from apps and mobile websites.